Tag Archives: investment advice

Medicare Advantage after PPACA

healthcare reformMy Comments: OK, I understand it; you’re sick and tired of posts about the PPACA and the crap our so-called leaders in Congress are doing to muddy the waters. Unfortunately, access to affordable health care is what tends to keep us alive, never mind that the system is mostly a sickness treatment system and not a wellness system.

The fact remains that the doom and crisis promoted by a certain political party in this country has not come to pass. Indeed, some of the most vigorous opponents are now cozying up to the idea by promoting a variant of it in their home states. This article talks about just one element of the national health debate.

Jan 25, 2015 | By Danielle Kunkle

For several years now we’ve heard warnings that billions of dollars in funding cuts to Medicare Advantage plans under the Patient Protection and Affordable Care Act will result in reduced benefits and higher premiums as well as smaller provider networks and fewer plans.

In fact, the Congressional Budget Office projected the cuts would result in three million fewer enrollees in MA over the long run.

In the short run, however, plans seem to have done a great job keeping coverage as affordable as possible, and enrollment in MA plans remains high.

There’s nothing like worrying about healthcare, especially how you’ll pay for it in retirement.

Will this trend continue? It’s hard to say. As of January 2015, only 20 percent of the total legislated cuts have been phased in, and while many seniors in MA plans already are absorbing higher cost-sharing, there’s been no tremendous public outcry thus far.

There’ve also been some measures enacted to mitigate some of the impact of those cuts that have been phased in already, so the real impact of PPACA on plans will become clearer in the next few years. Let’s take a look at the big picture.

PPACA changes how insurers are paid

Some legislators felt MA plans were being overpaid for the benefits they deliver, and that to bolster the solvency of Medicare itself, the nation needed to lower payments to MA insurers.

In essence, PPACA aims to slowly lower Medicare Advantage payments over time until the government pays the same amount per beneficiary whether they enroll in original Medicare or an MA plan. Most Medicare plans began receiving less pay in 2012 but the cuts are to be phased in from 2012–2017, so we have a ways to go yet.

Under PPACA, plans also can qualify for a bonus payment for providing better care. Plans have to report data detailing how many of their members are routinely getting preventive care under the plan, as well as how many get additional support in managing chronic conditions such as diabetes. Plans receiving higher star ratings get higher bonuses, with the desired result being that the bonus program will encourage plans to focus on delivering a higher quality of care, thus increasing the value of the health care dollars spent by consumers.

The downside is that some plans linger in the 3 to 3.5 range, and might not survive long enough to reach the 4 to 5-star level that provides needed benefit dollars to survive.

Mandated benefits changes
PPACA also introduced a new mandatory cap for all Medicare Advantage plans designed to cut member costs. The cap limits the total out-of-pocket costs a member can incur for Medicare covered services each year. The limit is set to $6,700 in-network right now, which is substantially lower than limits many plans had before the law and thus results in higher spending by the plan.

The law also stipulates that plans can no longer charge members more for than Original Medicare for certain services such as chemotherapy and skilled nursing. Plans have had to revise benefits to come in line with this rule, and this means they’ll pay out more than they did before.

Going forward overall, plans also must spend at least 85 percent of premiums gathered back out on benefit, and the remaining 15 percent must pay for marketing, administrative expenses and of course, profits.

Enrollment grows anyway

So, in light of all these scheduled funding cuts, why have we seen MA enrollment continue to grow? Well, there have been extenuating circumstances.

The American Action Forum gave testimony in July that plans have been largely shielded so far because the Administration has used demonstration program dollars to partially offset the first phases of PPACA benefit cuts.

These project dollars end in 2015. The Administration also has backed down two years in a row on proposed payment cuts. A scheduled 2 percent cut in MA payments in early 2014 was avoided when CMS announced a 3.3 percent increase in payments, and this allowed plans to keep some benefits that may otherwise have been cut.

These extra dollars have kept benefit changes relatively minor. The Kaiser Family Foundation reported that about half a million beneficiaries had to find new plans for 2014 because their prior plan was no longer available. Many argue beneficiaries are overwhelmed anyway with too many plan choices, so fewer plans could be a good thing.

Some other beneficiaries have experienced doctor changes. Shrinking networks have made national news this year, with one large carrier terminating as many as 15 percent of its in-network physicians. Trimming networks is a common way plans can absorb funding cuts without having to change benefits drastically. Doctors with a record of providing the most cost-effective care get to stay in the network while others are booted.

While this is always disruptive for the members affected, these beneficiaries generally switch to another Medicare Advantage plan rather than take on the added expense of Medigap. The same can be said for beneficiaries who saw MA premium increases, on average, of about $5 per month. A change like this doesn’t make someone suddenly want to go out and spend $150/month or more on a Medicare supplement. They simply change to a different Medicare Advantage carrier.

Agents who work in the senior market know that even small increases like a $5 increase in a doctor copay will often result in the member seeking to change plans. Unfortunately, when the other available plans also have had similar increases, members soon learn to just grin and bear the changes. So enrollment continues to grow because the people experiencing changes have nowhere else to go that’s more affordable.

Lastly, people new to Medicare are already used to health insurance plans with higher cost-sharing. They never experienced earlier plans that had richer benefits, and at age 64, many are paying many hundreds of dollars for insurance with high deductibles. To them, a Medicare Advantage plan with even a premium of $70 or more is a relief.

Calm before the storm?

What remains to be seen is how the plans will weather the rest of the cuts that are scheduled to phase in over the next few years, and how many times the Administration or Congress will step in to soften the cuts.

We’ve been kicking the can down the road for years on scheduled cuts to physician fees, and perhaps that’s the future for Medicare Advantage as well. Stay tuned.

Good Company, Bad Stock

retirement_roadMy Comments: This post is to remind you that stock market performance and the state of the economy do not follow the same track. From time to time there are close parallels, but they dance to a different drummer.

My arguments that the stock market is due for a crash are unrelated to the state of our economy. They are also unrelated to the name or party of the President in office at any given time. Obama cannot take credit for the current economic strength nor can G.W. Bush be blamed for the crash that happened in 2008. That I am also a Democrat is also irrelevant.

The stock market is going to crash again, and you need to be prepared if you have money exposed to what will be an unpleasant period. Period.

January 30, 2015 / Commentary by Scott Minerd

The U.S. economy is strong relative to other countries, but its equity valuations mean less upside potential for long-term investors than other areas of the world.

The U.S. economy is in the best shape out of any economy in the world, but it reminds me of a great business with a bad stock. Despite its underlying economic strength, I believe U.S. equity markets are likely to underperform those of less healthy economies in the long run. When I look around the world at economies that have many more problems than the United States, I see more upside potential for equity valuations and market performance in places like Europe, China and India.

Certainly, the United States is in a self-sustaining recovery—already the fifth-longest economic expansion since World War II. Despite noise this week around the 3.4% decline in durable goods orders, recent economic data releases continue to be positive: new home sales rose to a 6.5-year high and the Conference Board’s Consumer Confidence Index surged to 102.9 in January, the highest since August 2007. The U.S. economy remains the engine sustaining global growth, but when it comes to equity market valuations, a lot of the risk premia are out of the market.

One of my favorite macro-valuation tools is to compare total stock market capitalization to underlying gross domestic product (GDP). In the United States, this ratio is currently 134 percent, the highest level since the third quarter of 2003, the year this global comparison data became available. By the same measure, equity valuations in the euro zone, China and India are much lower. China’s equity market capitalization, for example, is 51 percent of its GDP, significantly below the previous high of 101 percent registered just prior to the global financial crisis.

As policymakers around the world introduce measures to reflate their economies and implement structural reforms to release growth potential, I wouldn’t be surprised to see Chinese, European, and Indian equities outperform U.S. stocks in the long run.

Switching to the bond market, I’ve been bullish since last fall that rates in the United States would decline to 2 percent or lower. In the near term, rates probably will fall further, but given that we’ve come more than 120 basis points since the beginning of January 2014 (as of yesterday’s close), it seems that the best part of the bull market in U.S. rates is over.

If it weren’t for quantitative easing in Europe and the deflationary shock coming out of oil, we would see U.S. rates meaningfully higher than they are today. With inflation likely to start picking up in the second half of the year, wage growth likely to start showing strength due to increases in minimum wage (20 states increased minimum wage effective Jan. 1), and the prospect that the Federal Reserve will probably increase rates at some point in the second half of the year, the vulnerability to rates rising will increase as the year plays out.

This will mean tough sledding for most of the bond market, but it’s not necessarily bad news for the U.S. economy. Even if rates rise modestly and a lot of the juice leaves the equity markets in 2015, the underlying economy is just fine and will continue to be just fine.

Foreign Markets May Offer More Growth Potential

U.S. stock market capitalization as a percent of GDP is at its highest level since the third quarter of 2003, the year this global comparison data became available. By the same measure, equity valuations in the euro zone, China and India appear much lower. As central banks in those countries implement policies to reflate their economies and structural reforms take hold, stock markets in those countries may present more attractive opportunities in the long run.

Group Health Insurance is Bad For America

healthcare reformMy Comments: Followers of this blog know my reasons for wanting to keep the PPACA in place, mindful of the need for a lot of modifications. What you may not know was about 40 years ago I cut my teeth in the insurance world selling individual health insurance policies.

My market was staff and faculty at the University of Florida where there was a one price, one plan fit all program. Those younger than average were paying the same as those in their sixties, thus subsidizing the old folks. I was able to provide equal or better coverage at far less money for those in my target market.

The health care industry, in all its forms, represents about almost 1/5th of our entire Gross National Product. Before the PPACA, the annual increase in health insurance premiums was about 7% per year, meaning before long, unless checked, it would choke us. You can argue that the PPACA should be abolished, but not before you come up with a meaningful alternative.

By Rick Lindquist February 3, 2015

(Editor’s note: This blog has been republished here with permission from Zane Benefits. This is part three of an ongoing series. You can check out the original, in its entirety, here.)

When you drive to work today, look around at the people, cars, and buildings you pass by. Between one-sixth and one-fifth of the people you pass on their way to work, representing 17.5 percent of our gross domestic product, work producing a product or service nobody really wants to buy—health care, or more accurately sickness care, since what most Americans call healthcare has very little to do with health.

Despite the fact that the United States spends two-and-a-half to three times per person what other developed nations spend on healthcare, the United States is the unhealthiest developed nation on earth. There are many reasons proposed for why this is so.

For example, 95 percent of the pharmaceutical prescriptions filled each year in the United States are for drugs you are expected to take for the rest of your life—because drug companies find it much more profitable to create customers for life by producing maintenance drugs that treat the symptoms of diseases versus drugs that cure diseases.

Medical providers from the individual doctor to the largest hospital are paid for their procedures and time spent versus their outcomes or health of their patients. However, the major reason that the U.S. health care industry costs so much is because the employers who pay for most U.S. health care do not have a financial stake in the long-term health of their employees.

Employees used to stay with one company for 25 years or more. Today, the average employee is projected to change jobs more than 10 times over his or her 45-year working life. Most of the major illnesses on which you can spend $1 today to save $100 tomorrow (like heart disease from obesity or cancer from poor nutrition) will not show up until an employee is long gone or retired, at which time the $100 cost is picked up by another employer or by taxpayers through Medicare.

As medical costs have escalated, employers have, in effect, told their medical providers to pay for only those expenses related to keeping or getting the insured back to work—and this does not include paying for the prevention of a disease that will not manifest itself during the expected tenure of the employee with the company.

Despite a new federal mandate in PPACA that employers must cover preventive care, the federal definition of preventive care includes tests like mammograms and prostate exams that merely screen for diseases rather than help prevent them.

Significant weight reduction, nutritional advice, vitamins, minerals, smoking cessation, and hundreds of other wellness-related treatments are excluded from most group and most individual health insurance plans. Although at least with individual health insurance plans you can choose to apply the savings to your wellness care.

In summary, rising health care costs, driven mostly by group health insurance, punish our nation on multiple fronts:
1. For you and your family, rising healthcare costs means less money in your pockets and forces hard choices about balancing your children’s education, food, rent, and needed care.
2. For your company, rising healthcare costs make it more expensive to add new employees and reduces budgets available for marketing, customer service, and product development.
3. For the government, rising healthcare costs lead to reduced funding on other priorities such as infrastructure, education, and security.

What’s the solution?
You should switch to individual health insurance because its good for America. With an individual plan, it empowers Americans to manage their own healthcare and it makes American businesses more competitive.

Tricks of the Mind Turned Oil Into Gold

oil productionMy Comments: Once again, I have a blog post about OIL. Clients are asking me how was it possible for the price of oil to rise as far as it did just a year ago and yet here we are, with the per barrell price 40% of what it used to be. If it’s economically realistic at $50 per barrell, how come the price was $140 or more just 18-24 months ago?

A basic premise found in Economics 101 is that the price of anything is a function of supply and demand. That rule is working now, but it still doesn’t explain where the money went when the price was $140 per barrell. These comments will help you better understand this phenomena.

Mikhail Fridman / January 28, 2015

In 2007 I made a bet with a fellow Russian businessman. The price of oil, he told me, would never drop below $80 again. This was the consensus among oilmen at the time. And that, I thought, was the surest sign that the oil price would soon start falling.

I told my acquaintance that the oil price could easily go down to $40. What determines it, I said, is not supply, demand or the cost of production. Rather, what matters is the mere perception of a potential shortage.

The price of oil stayed high only because people believed there was not enough of it to go around. But once people believe that, consumers start looking for an alternative while producers try to pump more of the stuff — and then prices fall.

I am not a professional oilman and my assumptions were based not on knowledge of geology or the rate of economic growth in China, but on the simple fact that humanity usually finds a way around any obstacle in its path.

While many of my colleagues in Russia and elsewhere are arguing about when the oil price may bounce back, I am convinced that we have entered a new period of low oil prices. It is like alchemy, but in reverse: black gold, a precious substance whose price was determined by its scarcity, has turned into a black, smelly liquid that makes wheels turn.

It is not the first time this has happened. The price of oil was relatively stable until the 1970s brought the psychological shock of an embargo imposed by Saudi Arabia on the export of oil to America.

In 1975, the US started its petroleum strategic reserve, contributing to the perception that oil was scarce. Oil producers saw their main objective was to guard their oligopoly. No one cared about such trifling matters as efficiency — the distribution of licences was far more important. A good lobbyist was worth more to an oil company than a good engineer.

To deal with this challenge, developed countries started to invest in energy saving and new technologies, and by the early 1980s this started to yield results. The ensuing fall in oil prices eventually sapped the Soviet Union of its economic lifeblood.

The price of oil stayed high only because people believed there was not enough of it to go around. But once people believe that, consumers start looking for an alternative while producers try to pump more of the stuff — and then prices fall.

Rapid economic growth in China and India in the early 2000s changed the perception about the balance between demand for oil and its scarcity. And once again developed countries with high levels of entrepreneurial freedom set themselves to work on solving the bottleneck.

There was no single solution, but everyone thought of something: biofuel, wind energy, oil sands, shale.

It was no accident that the countries that led the innovation were liberal market economies with strong property rights, while the countries that wished to thwart these efforts were resentful of competition and riddled with monopolists. They treated private property as a concession that could easily be taken away.

Political systems based on the distribution of rent demoralise people. Political regimes based on free competition motivate people. It is because of free initiative and competition that humanity can overcome bottlenecks.

The reason America has led the way in the production of shale oil and gas is not that it has a lot of shale — many other countries have a similar geology. It is that America has a lot of economic freedom.

This is a precious resource that many other countries lack. Its government does not sell licences for onshore drilling. It lets people buy land, and promises that nobody can take away from you what it is yours.

The dizzying oil prices of recent years were profoundly abnormal. The fall will turn oil production into a proper business where costs and efficiency matter more than lobbying power. This stands to make the world freer and safer, by reducing the power of illiberal regimes that thrive on oil rents.

Two years ago, I found myself in Manaus, a unique city in Brazil’s Amazonas, in the middle of the rainforest. In the late 19th century Manaus became one of the richest and most extravagant cities thanks to the rubber it had.

It built a splendid Belle Époque-style opera house out of Italian marble with vast domes and gilded balconies. But a few years later the seeds of the rubber tree were smuggled out of the Amazon and Brazil lost its monopoly.

Then the invention of artificial rubber finally buried the entire prosperity of this tropical Paris. Manaus fell into poverty, electricity generation became too expensive and the opera house went dark. It is a powerful lesson to the futility of suppressing competition.

The writer is an international businessman and chairman of LetterOne Group and Alfa Group Consortium

Military Retirement Faces Shake-up

FT 11FEB13My Comments: I did not serve in the military; I failed my draft physical way back in 1959. They gave me a 1-Y classification that said ‘only in case of national emergency’. I don’t think I was upset since by then I was a freshman at the University of Florida and VietNam was looming on the horizon.

All the same, I’m sensitive to those who did, especially all the millions who served and survived and spent years in the effort. And as someone now of an age when retirement is normal and expected, making sure the benefits for those who worked long hours for all of us is financially secure is important.

Here’s a short glimpse into what is going on. As a financial planner of many years, this makes sense to me.

Jan 28, 2015 | By Marlene Y. Satter

A long-awaited report on the military’s compensation system will include proposals for sweeping changes in how retirement is approached, the Military Times reported Wednesday.

The newspaper, citing anonymous sources familiar with the report, said its provisions will include a phase-out of the current system, which allows service members to collect a benefit immediately upon retirement after 20 years.

A hybrid system is set to be proposed as a replacement, one which will incorporate a smaller defined benefit plan, lump-sum payments and more cash-based benefits.

In addition, the new system would incorporate a 401(k)-type investment account as a significant portion of a service member’s retirement benefit.

The new plan would automatically enroll service members in the government’s Thrift Savings Plan, with service members being responsible for managing their own accounts.

Money in the TSP is not accessible without penalty until the participant turns 59½. Troops would be required to serve a minimum period of time before they are eligible for full ownership of the account, and the government would likely contribute a percentage of basic pay that could vary based on years of service and deployment status.

In addition to the 401(k)-type benefit, there would also continue to be a DB component to the plan, but the coming proposal is expected to make it more modest than at present and restrict its availability until age 60 or perhaps even later.

Such proposed changes not only would have to be approved by Congress, but would affect only new recruits. Currently serving military personnel would be grandfathered into the existing system.

The Military Times said companion proposals to change the health benefits offered by the military are also expected, although they would likely affect troops presently serving — should such proposals manage to pass Congress.

Social Security: 5 Facts You Must Know

retirement_roadMy Comments: With the GOP now controlling the House and Senate, there is increased talk about threats to the Social Security system. After all, this is a socialist program, designed to help the financially weakest among us.

I’ve long maintained that small tweaks, similar to what Congress has already done some 20-25 years ago, will allow the system to remain viable for the next 50 years. By then it is anyone’s guess how long people will be living and expecting to receive benefits.

If you are not yet signed into the system and receiving SSA benefits, get in touch with me. I have access to sophisticated software that will be help you optimize your benefits. As the author says below, Social Security is a complicated program, one that gives you a choice of 97 months during which you can choose to sign up. The difference between the worst and best month can be hundreds of thousands of dollars to you and your family.

By: Jordan DiPietro

Social Security is a complicated program, yet you cannot afford to NOT know everything you should about your benefits. Even knowing this, it can be hard to find the information you need in order to make the most informed decisions for you and your family.

In the following TOP 5 list below, The Motley Fool’s Financial Planning Team reveals five essential, but little known facts, about the Social Security Program and how it will affect millions of Americans. Although most people expect Social Security to be there for them when they retire, they could be wrong – and by then it might be too late.

Number 5: Social Security Is Massive
In 2014, over 59 million Americans will receive Social Security. Among them are:
• 40.9 million retired workers and their dependents
• 10.8 million disabled workers and their dependents
• 6.2 million people receiving survivors benefits

Number 4: The Elderly Could Not Survive Without This Program
Many elderly Americans heavily rely on Social Security; it’s the major income source for most older Americans. In fact, Social Security benefits account for 38% of the U.S. elderly population’s income. Even more important, half of married couples and three quarters of singles receive at least half their retirement income from Social Security.

Number 3: The Workforce Is Having to Support More Retirees

Demographics are not in our favor as fewer workers support more retirees. In 1950 there were 16 workers per Social Security recipient. In 1960 there were 5 workers per recipient. By the year 2033, only 2.1 workers will support one retiree.

Number 2: The Numbers Just Don’t Add Up
Social Security relies on its trust fund in order to cover shortfalls between tax revenue it receives from workers and benefits it pays. The trust fund is projected to run out of money in 2033. Once that happens, retirees can only expect to receive about 75% of the benefits they would have received.

Number 1: The #1 Way to Increase Your Benefits

Every year you wait between full retirement age and age 70 before claiming Social Security benefits boosts the amount you receive by 8%. Those who wait until the age 70 maximum will get 32% more in benefits than those who take them at 66, and 76% more than those who take early benefits at 62. If you can afford to delay benefits until age 70 and if you live past age 82, you will receive more in lifetime income from Social Security than if you had waited until full retirement age.



My Comments: For some reason this has been both a stressful and satisfying week. My observation is that progress is being made on several fronts, both personal and globally. It’s Friday, and my mind is ready for a little levity. So… please keep your groans to yourself. Thanks.

1. The fattest knight at King Arthur’s round table was Sir Cumfurance. He acquired his size from too much pi.

2. I thought I saw an eye-doctor on an Alaskan island but it turned out to be an optical Aleutian .

3. She was only a whiskey-maker, but he loved her still.

4. A rubber-band pistol was confiscated from an algebra class, because it was a weapon of math disruption.

5. No matter how much you push the envelope, it’ll still be stationery.

6. A dog gave birth to puppies near the road and was cited for littering.

7. A grenade thrown into a kitchen in France would result in Linoleum Blownapart.

8. Two silk worms had a race. They ended up in a tie.

9. A hole has been found in the nudist-camp wall. The police are looking into it.

10. Time flies like an arrow. Fruit flies like a banana.

11. Atheism is a non-prophet organization.

12. Two hats were hanging on a hat rack in the hallway. One hat said to the other: ‘You stay here; I’ll go on a head.’

13. I wondered why the baseball kept getting bigger. Then it hit me.

14. A sign on the lawn at a drug rehab center said: ‘Keep off the Grass.’

15. The midget fortune-teller who escaped from prison was a small medium at large.

16. The soldier who survived mustard gas and pepper spray is now a seasoned veteran.

17. A backward poet writes inverse.

18. In a democracy it’s your vote that counts. In feudalism it’s your count that votes.

19. When cannibals ate a missionary, they got a taste of religion.

20. If you jumped off the bridge in Paris , you’d be in Seine .

21. A vulture carrying two dead raccoons boards an airplane. The stewardess looks at him and says, ‘I’m sorry, sir, only one carrion allowed per passenger.’

22. Two fish swim into a concrete wall. One turns to the other and says, ‘Dam!’

23. Two hydrogen atoms meet. One says, ‘I’ve lost my electron.’ The other says, ‘Are you sure?’ The first replies, ‘Yes, I’m positive.’

24. Did you hear about the Buddhist who refused Novocain during a root-canal? His goal: transcend dental medication.

25. There was the person who sent ten puns to friends, with the hope that at least one of the puns would make them laugh. No pun in ten did.